Celestica, Inc. Earnings Preview: Solid Demand to Drive GrowthCelestica, Inc. Earnings Preview: Solid Demand to Drive Growth Earnings Estimates: Celestica, Inc. (CLS) is expected to report second-quarter 2024 earnings on July 24. The Zacks Consensus Estimate for revenues is set at $2.25 billion, representing a 15.78% increase year-over-year. The consensus estimate for earnings per share is 81 cents, suggesting a 47.27% increase from the same period a year ago. Earnings estimates have improved in recent months. History of Earnings Surprises: Celestica has consistently surpassed earnings expectations in the past four quarters, with an average positive surprise of 13.09%. In the previous quarter, the company delivered a 19.44% earnings surprise. Factors Impacting Results: Acquisitions: * Acquired NCS Global Services LLC for $36 million to strengthen its Connectivity and Cloud Solutions segment. Product Launches: * Introduced ES1000, ES1010, ES1050, and EG1050 enterprise access networking switches, which are designed for data center applications. Segment Performance: * Solid momentum in the Connectivity and Cloud Solutions segment driven by demand for AI/ML Compute and Networking products. * Headwinds in the Advanced Technology Solutions segment due to a slowdown in the electric vehicle market, partially offset by strong demand in commercial aerospace. Competition: * Faces competition from Flex BV and Jabil Inc., which may pressure margins. Valuation: * Trading at a premium to the industry based on the price-to-earnings ratio. Investment Considerations: * Strong product portfolio and focus on innovation provide growth potential. * Broad and diversified customer base supports revenue stability. * Geopolitical unrest and industry competition pose risks. * Valued at premium metrics, may limit near-term upside. Analyst Recommendations: * Zacks Rank #3 (Hold) * Earnings ESP: 0.00% Conclusion: Celestica’s solid product offerings and customer base are expected to drive growth, but competition and geopolitical risks should be monitored. While the company has a strong long-term outlook, investors may consider a more favorable entry point if the current valuation appears unattractive.
Celestica, Inc. (CLS Quick QuoteCLS – CLS Inc. (Free Report) is scheduled to report second-quarter 2024 earnings on July 24. For the second quarter, the Zacks Consensus Estimate for revenues is set at $2.25 billion, implying growth of 15.78% from the year-ago quarter’s reported figure. The Zacks Consensus Estimate for second-quarter earnings is set at 81 cents per share, suggesting an increase of 47.27% year-over-year. Earnings estimates for CLS have been improved over the past 90 days, from $2.91 per share to $3.32 per share for 2024 and from $3.25 per share to $3.64 per share for 2025.
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History of earnings surprises
The leading electronics manufacturing services company delivered a four-quarter earnings surprise of 13.09%, beating estimates each time. In the last reported quarter, the company delivered an earnings surprise of 19.44%.
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Earn whispers
Our proven model does not definitively predict an earnings beat for Celestica in the second quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the probability of an earnings beat. That is not the case here. You can discover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Celestica currently has an ESP of 0.00% and a Zacks Rank #3. You can see The complete list of today’s Zacks #1 Rank stocks here.
Factors that determine the upcoming results
During the quarter, Celestica signed a definitive agreement to acquire NCS Global Services LLC, a leading IT infrastructure and asset management company in the United States, for $36 million. The acquisition is expected to strengthen the capabilities of the Connectivity and Cloud Solutions (CCS) segment’s service offerings and expand its geographic footprint.
During the reported quarter, the company introduced a series of enterprise access networking switches named ES1000, ES1010, ES1050 and EG1050. All the newly launched Ethernet switches are compact, secure, scalable and support a range of memory and processor options. The innovative features make the solutions ideal for the dynamic performance and connectivity demands of advanced data center environments. These are likely to have translated into incremental revenues.
The company sees solid momentum in the CCS segment, driven by healthy demand for AI/ML Compute and Networking products. The company’s 800G platform, critical for supporting high-bandwidth AI applications in data centers, continues to gain market traction. Demand for 400G switches also remains strong.
However, the ATS (Advanced Technology Solutions) segment is facing headwinds in the industrial sector, mainly due to a slowdown in the electric vehicle market. Nevertheless, strong demand in the commercial aerospace portfolio is expected to partially reverse these negative trends.
Moreover, despite the strong appeal of AI-driven products, there is fierce competition from Flex BV (FLEX Quick quoteBOW – Free report) and Jabil Inc. (JBL Quick QuoteJBL – Free Report) puts pressure on margins.
Price Performance
Over the past year, CLS has grown 250.9% compared to the industry’s growth of 25.3%. It has also outperformed its peers such as Flex and Jabil during this period.
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Key valuation metric
From a valuation standpoint, Celestica appears to be trading at a premium to its industry and well above average. Based on the price-to-earnings ratio, the company’s shares are currently trading at 16.12 forward earnings, higher than the industry’s 14.38 and the stock’s average of 7.35.
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Investment considerations
With a broad and diversified product portfolio, Celestica has benefited from the growing proliferation of AI-based applications and generative AI tools across industries. The company’s strong focus on innovation, diversification of its product and customer mix, and well-established business relationships with leading manufacturers have enhanced its growth potential. Robust demand across multiple end markets, including communications, enterprise, hardware platform solutions, aerospace and defense, bodes well for the company ahead of its second quarter earnings results.
However, the company derives the lion’s share of its revenues from Asia. Growing geopolitical unrest in the Middle East and rising tensions between China and Taiwan could affect its business. Fierce competition from major players in the electronic manufacturing services industry continues to squeeze margins. The frequent acquisition strategy has increased integration risks.
Endnote
With a Zacks Rank #3, Celestica appears to be in the middle of the road, and new investors may be better off proceeding cautiously. The company is currently trading at premium valuation metrics, and investors should consider waiting for a more favorable entry point to benefit from strong long-term fundamentals.
However, a single quarter’s results are not that important to long-term stakeholders. Investors who already own the stock may consider holding on, as favorable secular trends in the portfolio and a growing generative AI boom bode well for long-term growth.
